After Hurricane Ike, residents of Galveston and Bolivar Island discovered they did not have the insurance their agent had told them they purchased. To recover, a claim must be brought against the agent.
Failure to Procure Coverage as Requested by Client
In an action against an insurance agent or broker for failure to procure insurance coverage, the plaintiff will be able to establish the defendant’s breach of duty if it can be shown that the defendant failed to procure coverage as requested by the client. Failure to procure coverage may involve a failure to obtain any policy whatsoever, obtaining a policy which does not cover a particular risk for which the client desired coverage, or obtaining a policy which did not provide a sufficient amount of coverage to fully compensate the client in the event of loss.
Generally, an insurance agent or broker will be able to discharge his or her duties to a client by procuring coverage as requested or, alternatively, by advising the client within a reasonable time that the requested coverage has not been procured. This means that the defendant may not be liable where he or she makes reasonable efforts to procure coverage as requested and fails to do so, unless the plaintiff can also show that the defendant failed to advise the client that coverage had not been procured, or failed to adequately explain the limitations or exceptions contained in any policy which was obtained.
The Texas Supreme Court adressed these questions in May v. United Services Ass’n of America . In May, the Court held:
It is established in Texas that an insurance agent who undertakes to procure insurance for another owes a duty to a client to use reasonable diligence in attempting to place the requested insurance and to inform the client promptly if unable to do so. In Burroughs v. Bunch , an agent was held liable for fire damage to a house being built by his customer when the agent, after agreeing to have a builder’s risk policy issued on the house, failed to notify the customer that he had not procured such a policy. Similarly, in Scott v. Conner , an agent was held liable for fire damage after his customer requested a new policy to replace one cancelled by the insurer, and the agent neither procured such a replacement policy nor alerted the customer to this failure by returning the unearned portion of the premium from the original policy.
Liability was imposed in the Burroughs and Scott cases because the agent induced the plaintiff to rely on his performance of the undertaking to procure insurance, and the plaintiff reasonably, but to his detriment, assumed that he was insured against the risk that caused his loss. Unlike the plaintiffs in the Burroughs and Scott cases, however, the Mays were not misled into believing that a policy in their name existed. Moreover, they were not led wrongly to believe that their policy provided protection against a particular risk that was in fact excluded from the policy’s coverage. See Rainey-Mapes v. Queen Charters, Inc ., (agent gave assurances that shipowner’s contemplated trip from the Virgin Islands to Houston would be covered, when in fact policy contained a territorial exclusion clause encompassing points along that route); see also Pete’s Satire, Inc. v. Commercial Insurance Co ., (agent misrepresented that policy covered bar against risks relating to patrons’ consumption of alcoholic beverages). See also Couch on Insurance, (the law imposes on the agent the duty to perform the task of procuring or renewing insurance if he has promised to do so or given assurances ” ‘under circumstances which lull the insured into the belief that such insurance has been effected”). See Also Powell v. Narried , (“The failure of an agent …, even after the exercise of reasonable diligence to procure insurance, to notify the insured of the agent’s inability to obtain insurance, will likewise impose liability upon [the agent].”).